Namibians commit debt suicide. About 850 000 on credit

Namibians commit debt suicide.  About 850 000 on credit

02/10/2017
by KELVIN CHIRINGA 
News

 

An estimated 850 000 of Namibia's more than 2, 3 million population are currently living in debt, latest statistics from TransUnion have shown.

TransUnion is a consumer credit reporting agency that collects and aggregates information on over one billion individual customers in over 30 countries including "200 million files profiling nearly every credit-active consumer in the United States".

 Its customers include over 65,000 businesses.

TransUnion also markets credit reports and other credit and fraud-protection products directly to consumers. Like all credit reporting agencies, the company is required by US law to provide consumers with one free credit report every year.

The company estimated that about 850 000 of people living in Namibia are currently living on some form of credit, while another 30 percent of this figure is expected to have negative data recorded on their credit records, The Villager can reveal.

This number is indicative of 90 000 more Namibians who are now in some form of debt as TransUnion indicates that in 2013 the figure was standing at plus or minus 760 000.

Of this number, 25 percent were also recorded to have negative data recorded on their credit records, a euphemistic phrase that previously referred to being black-listed; TransUnion said the term is no longer being preferred as it has a negative connotation.

Explaining this bulge, TransUnion Namibia country manager Marcha Erni says it attest to the fact that Namibia has witnessed a growth in the population and thus the number cannot remain stagnant.

"This means that the population growth over the last decade we can’t expect the number of active credit individuals to remain the same. As the population growth there are more people in credit circulation,’’ she told The Villager in an exclusive interview.

However, she acknowledges with a tincture of sadness that it is further indicative of hard times has fallen on the majority of people who are resorting to one form of credit to the next.

"Times are tough, and people are perhaps struggling to pay their accounts,’’ she says. 

With unemployment now standing at a 34 percent high, the economy bogged in recession and many companies shedding off jobs, Erni said these are part of the primary reasons individuals are resorting to taking credit.

"Obviously, the country is in a recession, there is a lot more retrenchments happening. From what I have seen in the market. Look for instance in the building industry, how many people are out of jobs. 

"That all impacts on this figure. The more people that are being retrenched, the more people that are unable to make their monthly repayments,’’ she said.

She says the decrease in the general prices of essential commodities (deflation) is a welcome development but the sad reality because a significant number of people out of jobs may see nothing helpful.

"Even if you lower the inflation rate, it may mean that your commodities will not increase so much, but if someone is retrenched then the inflation rate is irrelevant,’’ she said.

The lowered interest rates are another positive move but only for those lucky to still have their jobs, for the jobless the figures do not make any sense.

So thank you for keeping the inflation rate low, but I need a job. Interest rates are relatively low at the moment it makes it much more affordable on a basic salary to maintain our loans for us fortunate enough to still have a job. 

However, look at your annual escalation, your insurance, utility bills or your telephone bills, all of those escalate at a minimum of 10 percent and people are failing to get a ten percent salary increase,’’ she says.

For the economy to have less and less indebted people it has to grow, augmented by the current inflation and interest rates, Erni acquiesces. 

"This is a direct result of the economy. Times are tough. We need job creation, yes for sure, stable interest rates which are thankfully there, low inflation rates so far good and we can’t complain at the moment. 

She has also lamented that companies, especially retailers, are either not properly or entirely not doing affordability tests before entering consumers into credit deals and hence instances of default.

"It’s my opinion that a lot of companies, because of the competition factor, are not adequately doing affordability tests. That’s incredibly dangerous. 

"They should have proper regulation in place, and they do tests regarding affordability. However look at retailers.  Go to any clothing retailer and try to open an account now, the type of limits that they grant individuals, in my opinion, is too much. 

"In my opinion especially clothing account companies, they do not do any affordability assessments like when you go to a bank where they ask: how much do you earn, what are your expenses?’’ she said.

She added, ‘’They sit on the pavements, and they give you their applications They need to attract more customers  and show those applications in our faces, just sign here, not giving an opportunity to understand the terms and conditions thoroughly.’’

Danny Meyer: Economic analyst

Economic commentator Danny Meyer says the situation is scary.

He notes that it is factual that soon after entering into gainful employment the average young Namibian will enter into a credit arrangement.

“Usually it starts off small and in the form of an account with a clothing and footwear retailer or a mobile phone service provider. 

"Then as those individual progresses through life, the debt escalates in value, as the Namibian becomes an account holder of a jewellery retailer or furniture store. 

"Keeps growing as a motor vehicle become an even bigger want or need. The pinnacle is usually a mortgage bond on the house,” says the professor. 

The situation is reflective of what Meyer calls “the absence of a saving culture, in times of emergency such as illness and death in the family,” which prompts individuals “to borrow from micro-loan entities.”

“Interest is exceptionally high, and soon earnings are just not enough to service all the loans and leave some spare to fund living costs. This leads to more borrowing,” he observes.

Meyer submits that some Namibians are dying and leaving behind debt, “In short then, from the time the person starts working until they die, they will be indebted.” 

“Millions have been spent by Namibia on running a financial literacy programme. One read of the success achieved by the Financial Literacy Initiative (FLI) housed within the Ministry of Finance, regarding the number of Namibians who now operate a bank account. Although commendable, what about achievement relating to the cultivation of a savings culture? Is the average Namibian saving anything at all?” he queries. 

He sees the low-interest rates as “unlikely to foster a savings culture.”

“They might even have the opposite effect by encouraging more spending by consumers,” Meyer submits.

The ease which comes with securing credit has seen more and more people falling on credit, which may partly explain the rise in the number of individuals living in forms of credit.

“It is easier to secure credit. For most Namibians all you need is a job, a pay-slip to prove earnings, proof of residence and an identity card.

“Retailers boldly promote account opening in their adverts. Even incorporate inducements and incentives in place marketing campaigns that entice consumers to open accounts and then spend money they don’t have,” he says.

He adds: “Revenue to be generated from interest by selling on credit is now a significant income stream for the retail sector. 

"A review of the annual financial statement (AFS) will reflect just how much revenue is generated. At times equal to the money gained from selling the merchandise.”
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